November 4, 2014
G2 - Financial Institutions and Services
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Removal of the Unwinding Provisions in the Automated Clearing Settlement System: A Risk Assessment
A default in the Automated Clearing Settlement System (ACSS) occurs when a Direct Clearer is unable to settle its final obligation. -
Optimal Margining and Margin Relief in Centrally Cleared Derivatives Markets
A major policy challenge posed by derivatives clearinghouses is that their collateral requirements can rise sharply in times of stress, reducing market liquidity and further exacerbating downturns. -
Filling in the Blanks: Network Structure and Interbank Contagion
The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. -
June 12, 2014
Stress Testing the Canadian Banking System: A System-Wide Approach
Stress testing is an important tool used by financial authorities and entities around the world to evaluate potential risks to the financial system. Kartik Anand, Guillaume Bédard-Pagé and Virginie Traclet discuss different stress-testing approaches, with emphasis on the innovative and analytically rigorous model developed by the Bank of Canada: the MacroFinancial Risk Assessment Framework (MFRAF). They also present the stress-test results obtained in the context of the 2013 Canada Financial Sector Assessment Program led by the International Monetary Fund, including the important contributions made by the use of MFRAF in the exercise. -
June 12, 2014
Making Banks Safer: Implementing Basel III
Éric Chouinard and Graydon Paulin review the progress to date in implementing Basel III, the new framework of global regulatory standards for the banking sector developed by the Basel Committee on Banking Supervision. The report highlights the expected net benefits of implementing Basel III, as well as the challenges in ensuring international consistency in measuring the risk-weighted capital of banks. It includes a discussion on how implementing Basel III has affected the banking system in Canada and other important jurisdictions, and demonstrates the need for ongoing assessment of the effects on the financial system and the macroeconomy. -
Rollover Risk, Liquidity and Macroprudential Regulation
I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex ante and are subject to fire sales ex post. -
High-Frequency Trading Competition
We analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out. -
Uncertain Costs and Vertical Differentiation in an Insurance Duopoly
Classical oligopoly models predict that firms differentiate vertically as a way of softening price competition, but some metrics suggest very little quality differentiation in the U.S. auto insurance market. -
Do Sunspots Matter? Evidence from an Experimental Study of Bank Runs
A "sunspot" is a variable that has no direct impact on the economy’s fundamental condition, such as preferences, endowments or technologies, but may nonetheless affect economic outcomes through the expectations channel as a coordination device. This paper investigates how people react to sunspots in the context of a bank-run game in a controlled laboratory environment.